. . . other than using yesterday’s lessons as a place to begin.
Two years ago, while on a two-week road trip from Houston to Vegas, I begin to digest some of what I had been reading on the economy and the financial markets, which was beginning to give me reason to be concerned for our financial future. Not being a student of either, I felt a need to become more informed and directly involved in the management of our assets, which meant I had a lot to learn. To do so, I needed someone (advisory) that would not only be more client-oriented, but also be a teacher – someone who could be my mentor. I found that person in Bob McNeily. Since that time we have seen the Dow go from over 14,000 to below 7,000 — a severe drop by any definition, while managing a 28% demise of our personal financial portfolio (I’m pleased to note that this loss has been completely erased.), and the government becoming the bank of last resort.
The economy did finally fall into recession by the end of 2007. Since then real GDP has fallen by almost 4% and the unemployment rate has gone up by almost 5%. Now we are told the recession is over, but the scares on the economy remain and many questions still unanswered.
How did the experts get it so wrong?
Can they learn from their mistakes?
Will politics thwart any meaningful reform?
Are banks, even now, re-creating the conditions that lead to a near-financial collapse?
The answers to these and many others will depend on whose history you will be reading tomorrow. However, some answers can come by fast-forwarding to the past and reading what a little known economist, who studied and wrote on capitalism and why it fails, had to say. Hyman Minsky, a student of both the great depression and capitalism, predicted decades ago, the recent global financial meltdown, so accurate were his predictions that current pundits are referring to the meltdown as the “Minsky meltdown.”
“Instability,” Minsky wrote, “is an inherent and inescapable flaw of capitalism.” You can read more about Minsky’s vision in the September 13, 2009 Boston Globe article by Stephen Mihm, “Why capitalism fails – The man who saw the meltdown coming had another troubling insight: it will happen again.” Mihm writes, “Minsky did not share his profession’s quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. ‘There is no simple answer to the problems of our capitalism,’ wrote Minsky. ‘There is no solution that can be transformed into a catchy phrase and carried on banners.’”
Those of you who visit this blog know that I like ulffmorgenthaler cartoons, well, at least some of them. Often, I have said, “life is a rollercoaster — so too is the market.
Barry found a quote from Adrian Van Eck, which points out that “…most small banks are run the way banking used to be done and is supposed to be done. They take money in from savers-depositors.”
There are many who believe that including provisions for welfare programs in a stimulus package would not stimulate the economy. Not surprisingly, many economist, including Congressional Budget Office (CBO) director Douglas W. Elmendorf and Mark Zandi, the chief economist and co-founder of Moody’s Economy.com, who was reportedly a McCain campaign economic adviser — have stated that, in Zandi’s words, “aid to financially-pressed state governments” is an “economically potent stimulus.”
In testimony before the House Committee on Small Business, July 24, 2008, Zandi included with his written testimony the following chart: _
You can see that “General Aid to State Governments” would boost real GDP by $1.36 for every dollar spent, while “Extending UI [unemployment insurance] Benefits” and providing a “Temporary Increase in Food Stamps” would increase real GDP by $1.64 and $1.73 per dollar spent.
“For centuries, people have worried that economic growth had limits — that the only way for one group to prosper was at the expense of another. The pessimists, from Malthus and the Luddites and on, have been proved wrong again and again. Growth is not finite. But it is also not inevitable. It requires a strategy.”
Want to learn more about today’s economy and a possible fix, chick here.
“ACADEMIC PAPERS ON THE ECONOMY AND finance are for the most part like uncooked oatmeal — hard to digest.” As we try to make sense of how we got to where we are and what tomorrow holds for us, Alan Abelson writes in yesterday’s Barron’s about a recent study that sees more bumps ahead for the economy and the market. The study bears the title, “The Aftermath of Financial Crises,” and it’s by Kenneth Rogoff of Harvard and Carmen Reinhart of the U of Maryland. A good read and may be helpful in trying to put into perspective that might assess us in adjusting to what will likely be a protracted resession for the next three to four years.
CartoonColdbeacon
Two years ago, while on a two-week road trip from Houston to Vegas, I begin to digest some of what I had been reading on the economy and the financial markets, which was beginning to give me reason to be concerned for our financial future. Not being a student of either, I felt a need to become more informed and directly involved in the management of our assets, which meant I had a lot to learn. To do so, I needed someone (advisory) that would not only be more client-oriented, but also be a teacher – someone who could be my mentor. I found that person in Bob McNeily. Since that time we have seen the Dow go from over 14,000 to below 7,000 — a severe drop by any definition, while managing a 28% demise of our personal financial portfolio (I’m pleased to note that this loss has been completely erased.), and the government becoming the bank of last resort.
Believe me, there are no quick fixes!
Banks’ Fictitious Capital
Robert Reich helps you connect the dots — get the big picture!
kenne
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